"You now have a Swiss bank account if anybody asks. Crédit Nationale Du Génève code name 'PADDY.' Lavish awkward gesture; all of 15 Swiss Francs in it. But if you ever want to impress anybody, they can find out you have a Swiss account. But Swiss law prohibits the bank from revealing the balance. Thus are all men made equal."
Jimmy Dell, a character in the 1997 movie "The Spanish Prisoner," offered that description of the secrecy afforded an owner of a Swiss bank account.
Jimmy's words are no longer true.
Opening up accounts: Thanks to the Foreign Account Tax Compliance Act (FATCA), which became law in March 2010, the Internal Revenue Service has been aggressively keeping tabs on U.S. taxpayers who have accounts outside the country.
FATCA is designed to impel foreign financial institutions and other financial intermediaries to share client account information in order to prevent tax evasion by U.S. citizens and residents from hiding money from the IRS.
FATCA also gives the IRS the authority to impose hefty penalties on individuals who do not disclose and pay necessary taxes on these offshore accounts.
Basically, "forget about confidentiality," international tax lawyer Henry Christensen told the Wall Street Journal last week. "Transparency is here to stay."
Tax amnesty alternative: Uncle Sam also has employed an amnesty carrot to go with the FATCA stick.
The IRS doesn't call it an amnesty; the agency prefers the term offshore voluntary disclosure program, or OVDP. Whatever the name, it's working. Back in June 2012 the IRS said that two amnesty OVDP offerings in 2009 and 2011 brought in more than $5 billion in taxes (and penalties) on previously undisclosed accounts.
Last summer, the IRS also opened up its third OVDP, which is still available to folks who want to 'fess up about offshore money, pay their taxes on it and face less expensive penalties than would apply when the IRS catches them.
Costly offshore evasion: And chances are good that the IRS will eventually catch you.
Houston attorney and tax law professor Jack Townsend has been tracking offshore account convictions at his wonderfully-named blog Federal Tax Crimes. The table below is a clip of the spreadsheet he's put together.
Offshore Account Convictions
April 16, 2011 through Sept. 18, 2013
Statistics by Sentencing Disposition (Plea or Guilty Verdict)*May be more but this is what Townsend has tracked down
**Average where there was tax loss findings
***Defendants usually paid tax before sentencing; hence no restitution
****Average where there was restitution
The latest addition to the conviction list is Ty Warner.
Warner is the Chicago-area entrepreneur who made much of his billions off the Beanie Babies craze of the '90s. As noted in a post last week at my other tax blog, Warner has agreed to pay a whopping $53.5 million settlement in connection with taxes owed on his offshore holdings.
According to the Department of Justice, Warner allegedly set up a secret account at the giant Swiss national bank UBS in 1996 (pre "Spanish Prisoner"). There, contend prosecutors, he more than $3.1 million in foreign income. By 2002, the account was worth around $94 million, and Warner allegedly moved the money another Swiss bank, where it was held under the name Molani Foundation to hide Warner's ownership.
The bottom line, says the Justice Department, is that Warner owed almost $1.3 million in income tax on the unreported income, but an amended 2002 return cut the unpaid tax bill to $885,300.
That would have been the cost if he'd just paid up on his Swiss-banked money back then. Now he's going to fork over 60 times that amended tax amount.
The $53.5 million settlement is, according to those who follow these types of cases, among the largest penalties and likely the single biggest tax penalty ever assessed on undisclosed foreign accounts.
So if you have a foreign account that meets the FATCA disclosure requirements, let the IRS know via annual Form TD F 90-22.1 filings, commonly referred to as Reports of Foreign Bank and Financial Accounts or FBARs.
You also might find these items of interest:
- UBS whistleblower gets record $104 million reward for helping IRS
- Renouncing U.S. citizenship, for tax and other reasons
